CNBC.com
Directors: It's Hard for Boards to Control CEO Pay
Published: Monday, 1 Nov 2010 3:29 PM ET
A new survey finds a majority of corporate directors believe boards have trouble controlling CEO pay. PwC's 10th Annual Corporate Directors Survey found 58 percent of the 1,110 directors who responded to the survey felt controlling CEO pay was a problem, though most of them believe their own boards do a good job of it.
"It's very much a 'not in my back yard' issue," said Catherine Bromilow, partner in PwC's Center for Board Governance. "When they look outside their boardroom, they think there are issues, but when they look within their own boards, 83 percent thought that their own board's compensation committee was either very effective or effective in managing CEO compensation."
Bromilow also notes the 58 percent who believe boards have trouble controlling pay is a smaller percentage than last year, and its one of the lowest positive responses for a question asked every year in the survey.
This latest reading comes as CEO pay fell for the second year in a row in 2009. According to the compensation research firm, Equilar, average pay for CEOs running public companies with over $5.8 billion in revenue fell 15 percent to $9.5 million. Still, reports of multimillion dollar payouts to executives as the economy struggles and unemployment remains mired close to 10 percent, never fail to raise ire on Main Street and in Washington D.C.
The survey found directors believe pay can be controlled more effectively three ways. Eighty-three percent of the respondents said directors need to make sure a firm's peer companies, or those they compare their CEO pay to, must be realistic. Eighty-two percent said boards also need to reevaluate compensation benchmarks, and 65 percent said minimum stock ownership guidelines could be effective in keeping pay under control.
With the Dodd-Frank bill giving shareholders of all public companies a "say on pay," or a non-binding vote on executive compensation, there was a slight decline in directors who think this is a bad idea. Eight-two percent of those surveyed said they did not think investors should have a "say on pay," down from 92 percent in 2007.
"The challenge is [that] pay is very complex," said Bromilow. She points out that even with other complex issues, such as financial reporting, there's a clearer process. Bromilow said that's not the case with executive pay and thus, directors feel shareholders may not be sophisticated enough to understand why boards decide to pay an executive what they do.
As for their own pay, 53 percent of the directors thought their pay should remain the same, with 45 percent saying it should increase and 2 percent saying it should be cut.
The survey, which was sent to 10,000 directors at the top 2,000 companies by revenue, found directors believe their boards do a good job of risk management, though Bromilow said one area where many feel they could improve is succession planning. Here Bromilow said they gave themselves much lower marks.
"Three in ten directors aren't satisfied with the company's succession plan," she remarked. She said it's an issue boards have been focusing on more in light of some tumultuous CEO departures over the last year.
ACCESS CONTENT SOURCE: http://www.cnbc.com/id/39953874/Directors_It_s_Hard_for_Boards_to_Control_CEO_Pay
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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